Company Reports

Narrow-moat Asahi Group Holdings’ double-digit business profit growth in the first quarter was ahead of our expectation and the company’s internal targets thanks to continued price hike benefits, premiumization, positive volume growth in Europe and Japan, and rigorous cost control. Solid domestic profit growth reinforces our thesis that beer tax cuts will prompt consumers to shift to beer, a product in which Asahi holds a commanding lead and enjoys a moat from cheaper beerlike alternatives. Despite nearly double-digit volume contraction in Oceania, volume seems to have returned to growth in April. Given persistent uncertainty surrounding consumer sentiment and input costs in the core markets, we have maintained our full-year forecasts and fair value estimate of JPY 6,600. We continue to view Asahi’s shares, trading at a 16% discount to our intrinsic value, as undervalued. Our profit forecasts for 2024 are 2%-3% above the guidance.

Asahi is pinning its hopes on premiumization and global expansion to reinvigorate growth. The acquisition of SABMiller’s brands in Europe is a key stepping-stone to establishing its presence in the global premium beer market. Concurrently, the group intends to enhance profitability by rationalizing cost structure through supply chain optimization. Management has a proven record of cost-cutting. Whether it can continue a mid- to high-single-digit profit growth rate will depend on continued expansion of the premium offerings amid difficult economic conditions and the commodity prices of the key input. Unlike rival Kirin, which is looking for new revenue sources outside the shrinking beer market, Asahi is determined to stick to its core business. Asahi is targeting opportunities in the premium beer category not only because of the ongoing premiumization trend globally, but also because the strategic direction bodes well for its strengths in Asahi Super Dry, the number-one beer brand in Japan.

Narrow-moat Asahi beat its full-year business profit target as we expected, and guidance indicating a marginal profit increase was largely in line with our expectations. Persistent cost pressure as well as increased digital and talent investment factored in our forecasts, rather than currency headwinds, and will cap profit growth. We have fine-tuned our assumptions, mainly on foreign-exchange rates, and we rolled our forecasts to 2024, which leaves an immaterial impact on our fair value estimate of JPY 6,600. We continue to view Ashai shares as undervalued, trading at an 18% discount to our new intrinsic value. Our thesis that consumers’ shift to beers from cheaper beer-like drinks, driven by tax cuts on beers in Japan, will play in Asahi’s favor, is intact. Yet, inflation impacts on sales volume, particularly in Europe, and currency movement are the key downside risks to its near-term profits.

Asahi Group Holdings announced after the market closed on Nov. 16 that it will conduct a secondary offering, equivalent to 6.6% of its outstanding shares, overseas. The shares to be sold are owned by eight financial institutions, which have been holding Asahi’s shares for a cross-shareholding, as well as the pension fund of Mizuho Bank’s employees. While the secondary offering is likely to weigh on Asahi’s near-term share price, we believe unwinding the cross-shareholding is positive for Asahi’s corporate governance and shareholder structure over the long run. The timing of the unwinding also indicates management’s confidence in the firm’s growth prospects and future share performance. We reiterate our investment thesis that Asahi will be the key beneficiary of Japan’s tax reforms, which will prompt consumers to trade up to beers from cheaper beer-like alternatives. The shares are trading at a 12% discount to our fair value estimate of JPY 6,600.

Asahi is pinning its hopes on premiumization and global expansion to reinvigorate growth. The acquisition of SABMiller’s brands in Europe is a key stepping-stone to establishing its presence in the global premium beer market. Concurrently, the group intends to enhance profitability by rationalizing cost structure through supply chain optimization. Management has a proven record of cost-cutting. Whether it can continue a mid- to high-single-digit profit growth rate will depend on continued expansion of the premium offerings amid difficult economic conditions and the commodity prices of the key input. Unlike rival Kirin, which is looking for new revenue sources outside the shrinking beer market, Asahi is determined to stick to its core business. Asahi is targeting opportunities in the premium beer category not only because of the ongoing premiumization trend globally, but also because the strategic direction bodes well for its strengths in Asahi Super Dry, the number-one beer brand in Japan.

Narrow-moat Asahi Group Holdings posted a solid set of third-quarter results with sales up 10.2% and core business profits up 12.6%. Growth was boosted by domestic strength and improved volume in Oceania in addition to price hikes and favorable currency movement. We have fine-tuned our currency assumptions and raised profit projections mainly from 2025 and beyond to reflect our expectation of a delayed cost decrease to 2025 from 2024 and additional cost savings contributed by various initiatives including global procurement and Oceania’s transformation plan. We’ve accordingly raised our fair value estimate to JPY 6,600 from JPY 6,400 and view shares as undervalued. Currency and downtrading induced by inflation, particularly in overseas markets, will remain downside risks to our profit forecasts although we have factored in 12%-15% appreciation of the Japanese yen against other currencies through 2026.

Asahi is pinning its hopes on premiumization and global expansion to reinvigorate growth. The acquisition of SABMiller’s brands in Europe is a key stepping-stone to establishing its presence in the global premium beer market. Concurrently, the group intends to enhance profitability by rationalizing cost structure through supply chain optimization. Management has a proven record of cost-cutting. Whether it can continue a mid- to high-single-digit profit growth rate will depend on continued expansion of the premium offerings amid difficult economic conditions and the commodity prices of the key input. Unlike rival Kirin, which is looking for new revenue sources outside the shrinking beer market, Asahi is determined to stick to its core business. Asahi is targeting opportunities in the premium beer category not only because of the ongoing premiumization trend globally, but also because the strategic direction bodes well for its strengths in Asahi Super Dry, the number-one beer brand in Japan.

Narrow-moat Asahi Group Holdings’ upward revision on profit was no surprise. Yet, contrary to rivals’ mid- to high-single-digit volume decline induced by inflation in Europe and Australia, Asahi’s volume decline appears to be more moderate thanks to share gain in many core markets. Despite 3%-4% volume decline, there is no clear sign of downtrading. Better-than-expected profits are attributable to greater-than-expected cost savings achieved by the domestic brewery business and favorable currency movement. The healthy performance echoes Asahi’s economic moat in beers in which it holds a commanding lead in many core markets. We have fine-tuned our currency and beverage price hike assumptions mainly for 2023, which leaves an immaterial impact on our fair value estimate of JPY 6,400. We continue to view Asahi shares, trading at 15% discount to our intrinsic value, as undervalued. Asahi is on track to achieve core business profits exceeding the pre-COVID-19 level in 2024.

Narrow-moat Asahi Group Holdings’ double-digit profit growth in the first quarter was no surprise following rival Kirin’s strong results. Core profits, in particular for the domestic brewery and beverage business, came in ahead of the company’s internal targets thanks to successful prices hikes with limited volume impact and continued on-trade volume recovery. While cost increase was in line with guidance, management has taken a cautious stance on the profit outlook for the rest of the year given uncertainty surrounding consumer sentiment in the core markets and commodity price trends.

Narrow-moat Asahi’s announcement of 6%-10% price hikes on mainly on-trade beers and selected off-trade beer and beer-like items was a positive surprise. The price hikes, scheduled for October 2023 in conjunction with the second round of tax reforms, are expected to contribute JPY 10 billion in profits over a period of 12 months. As we have stressed, the tax cuts present a rare opportunity for brewers to hike beer prices. We welcome Asahi’s efforts to improve profitability of low-margin products and more importantly, to embrace a more flexible pricing strategy of its domestic brewery business that holds a commanding lead in the beer category. We have maintained our forecasts and fair value estimate of JPY 6,400, indicating 24% upside to our intrinsic value. The awaited price hikes will also benefit rival Kirin, where we see an 18% upside to our fair value estimate of JPY 2,600.

The 2022 results and outlook presented by narrow-moat Asahi give us confidence that profits will leap in 2024. Despite marginal profit growth guidance for 2023, there were several positives in management’s presentation, including share gains in many core markets and continued premiumization amid a challenging operating environment. While the market fears that recession and inflation, particularly in Europe, could derail its premiumization strategies, the fourth-quarter results indicate limited impacts. We believe that the food and energy cost inflation will have greater impacts on lower-income earners and thus more noticeable volume decline in the value segment. We have raised our fair value estimate to JPY 6,400 from JPY 6,000 after raising our profit forecasts marginally from 2025 and rolling the forecasts to 2023. Our new intrinsic value indicates a handsome 40%-plus upside.

Asahi is pinning its hopes on premium beer expansion to reinvigorate growth. The acquisition of SABMiller’s brands in Europe is a key stepping-stone to establishing its presence in the global premium beer market. Concurrently, the group intends to enhance profitability by rationalizing cost structure through zero-based budgeting and supply chain optimization. Management has a proven record of cost-cutting. Whether it can continue a mid- to high-single-digit profit growth rate will depend on the revival of Asahi Super Dry at home and the expansion of the premium offerings by cross-selling abroad. Unlike rival Kirin, which is looking for new revenue sources outside the shrinking beer market, Asahi is determined to stick to its core business. Asahi is targeting opportunities in the premium beer category not only because of the ongoing premiumization trend globally, but also because the strategic direction bodes well for its strengths in Asahi Super Dry, the number-one beer brand in Japan.

Narrow-moat Asahi posted a robust set of third-quarter results, with sales up 19% (currency neutral 13% growth) and core businsluess profit up 32%, thanks to continued on-trade recovery in Japan and Australia, and a spike in demand in Japan prior to the October price hikes. It appears that inflation has not triggered downtrading in these three core markets, although we think it is too early to tell whether the impact of inflation may become more evident in Japan and Europe from the fourth quarter. While Asahi looks set to meet its full-year profit guidance, as cost pressure would further escalate into 2023, we have reduced our 2023 profit estimate by 4%, and project profit to exceed the pre-COVID-19 level in 2024. The adjustments have an immaterial impact on our fair value estimate of JPY 6,000, implying attractive 40% upside to our valuation. Despite heightened risks concerning recessions in Europe and persistent cost pressure, we believe that Japanese consumers’ shift to beer, driven by tax cuts, will work in Asahi’s favor over the next few years given its commanding lead in the beer category.

Asahi is pinning its hopes on premium beer expansion to reinvigorate growth. The acquisition of SABMiller’s brands in Europe is a key stepping-stone to establishing its presence in the global premium beer market. Concurrently, the group intends to enhance profitability by rationalizing cost structure through zero-based budgeting and supply chain optimization. Management has a proven record of cost-cutting. Whether it can continue a mid- to high-single-digit profit growth rate will depend on the revival of Asahi Super Dry at home and the expansion of the premium offerings by cross-selling abroad. Unlike rival Kirin, which is looking for new revenue sources outside the shrinking beer market, Asahi is determined to stick to its core business. Asahi is targeting opportunities in the premium beer category not only because of the ongoing premiumization trend globally, but also because the strategic direction bodes well for its strengths in Asahi Super Dry, the number-one beer brand in Japan.

Narrow-moat Asahi’s profit growth swung back to positive territory in the second quarter thanks to the on-trade recovery and healthy growth in domestic off-trade beer, a key moat source. On the other hand, cost increases continue to escalate and are likely to reach JPY 80 billion for 2022. The group maintained its full-year guidance, expecting currency tailwinds to offset the profit shortfall caused by cost inflation and volume declines. While profits were in line with internal targets, the solid performance of domestic off-trade beer sales instills confidence in our thesis that Japanese consumers’ shift to beers driven by tax cuts will work in Asahi’s favor, given its commanding lead in the beer category. We maintain our fair value estimate of JPY 6,000 per share, indicating attractive 33% upside to our intrinsic value.

Narrow-moat Asahi’s double-digit profit decline in the first quarter was no surprise, given on-trade weakness in Japan and Oceania in addition to cost inflation. While sales fell short of the internal target, profits appeared better than expectations thanks to rigid cost control. We anticipate second-quarter on-trade demand will further pick up, although the cost surge is likely to advance at a faster pace. We have maintained our fair value estimate of JPY 6,000 per share, indicating attractive 28% upside to our intrinsic value. Suntory’s sizable price hikes on domestic soft beverage will benefit Asahi, which will follow suit, in our view. Healthy growth of its domestic beer sales also reiterates our thesis that favorable excise tax rates imposed on beer will continue to prompt consumers to shift to beer, in which Asahi holds a commanding lead and amasses an economic moat.

Narrow-moat Asahi announced 6%-10% (averaged at around 8%) price hikes on a broad range of domestic alcoholic items including beer and beer-like drinks, ready-to-drinks, non-alcohol beer, as well as hard liquor, from October 2022. The domestic price hikes, last seen in 2008, validate our thesis that Asahi will hike prices in Japan to secure profits, although the timing is one year earlier than our projection. We anticipate the rivals including Kirin will follow suit, which, coupled with on-trade demand recovery post COVID-19, should curb Asahi’s volume decline. We have maintained our forecasts and fair value estimate of JPY 6,000, indicating an attractive 30% upside to our intrinsic value. The awaited price hikes will also benefit rival Kirin—there is 36% upside currently at our fair value estimate of JPY 2,500.

Narrow-moat Asahi’s fourth-quarter business profit came in 5% above our expectation, but the business profit guidance for 2022 is in line with our estimate. We foresee on-trade volume recovery will offset impacts of cost inflation, although the near-term profit outlook hinges on the development of COVID-19. We have lifted our fair value estimate to JPY 6,000 from JPY 5,400 after rolling our forecast period and view shares as undervalued, trading at 15% discount to our intrinsic value. With on-trade recovery being the growth engine over the next two years, whether premiumization in the off-trade channel will sustain while on-trade volume picks up will be a key factor to watch. We project Asahi’s profits will exceed the pre-COVID-19 level in 2024.

Asahi is pinning its hopes on premium beer expansion to reinvigorate growth. The acquisition of SABMiller’s brands in Europe is a key stepping-stone to establishing its presence in the global premium beer market. Concurrently, the group intends to enhance profitability by rationalizing cost structure through zero-based budgeting and supply chain optimization. Management has a proven record of cost-cutting. Whether it can continue a mid- to high-single-digit profit growth rate will depend on the revival of Asahi Super Dry at home and the expansion of the premium offerings by cross-selling abroad. Unlike rival Kirin, which is looking for new revenue sources outside the shrinking beer market, Asahi is determined to stick to its core business. Asahi is targeting opportunities in the premium beer category not only because of the ongoing premiumization trend globally, but also because the strategic direction bodes well for its strengths in Asahi Super Dry, the number-one beer brand in Japan.

Narrow-moat Asahi's downward revision (cut full-year core business profit by 10.5 billion, or 4.7%) was somewhat expected given a sizable profit decline posted by rival Kirin a day before its announcement. However, the amount of the cost increase, likely to hit JPY 25 billion for 2022 (year on year), was a negative surprise. Management had previously hinted an increase of JPY 10 billion. We have lowered our profit estimates for 2021 to the level a touch above the guidance of JPY 214 billion, and for 2022 by 2%, given greater than expected cost inflation. The adjustment of assumptions was largely offset by increased time value of money, leaving an immaterial impact on our fair value estimate of JPY 5,400. While restoring on-trade volume will be a priority into 2022, we think management may hike prices to pass on higher costs in Europe and Australia in a timely manner but wait until the timing of the exercise tax reform in October 2023 in Japan if cost inflation is expected to persist into 2023. We view shares as being undervalued, trading at a 12% discount to our fair value estimate. Rising coronavirus infection remains a key downside risk to its near-term profits, especially during the fourth-quarter peak season in which Asahi expects a recovery in on-trade volume.